Nigeria Financial Reporting Council didn't follow due process

Stanbic's shares have fallen 18% since FRC announcement

Nigeria’s central bank rejected a request by the country’s Financial Reporting Council to take disciplinary action against Standard Bank Group Ltd.’s local unit after the FRC said the lender had made material misstatements in its financial accounts and recommended a fine.

The FRC didn’t follow due process and the central bank is “unable to accede to your request to take disciplinary action against” Lagos-based Stanbic IBTC Holdings Plc, Governor Godwin Emefiele said in letter to the FRC dated Nov. 2 obtained by Bloomberg and confirmed on Wednesday by central bank spokesman Ibrahim Mu’azu. “We are seriously concerned that such a drastic regulatory decision could be taken on an entity under the regulation and supervision of the Central Bank of Nigeria without any form of consultation of the bank.”

The Nigerian unit of Africa’s largest lender by assets is among other major companies facing fines over the past two weeks from the West African nation’s regulators. The Nigerian Communications Commission imposed a $5.2 billion fine on Johannesburg-based MTN Group Ltd. for failing to disconnect customers with unregistered SIM cards. First Bank of Nigeria, the country’s biggest bank by assets, was hit with a $9.4 million fine over a directive to transfer deposits of state companies to the central bank.

“The CBN regulates banking, but when it comes to financial reporting issues, that is the FRC’s prerogative,” Mack Ogbamosa, a spokesman for the FRC, said by phone. “The CBN cannot question the FRC’s job.”

Investor Confidence

The FRC on Oct. 26 suspended the registration to sign off on financial statements of four past and current Stanbic officials, including Chief Executive Officer Sola David-Borha and Chairman Atedo Peterside. The issue under dispute is how to account for cross-border payments, according to Johannesburg-based Standard Bank, which said Stanbic has been treating payments to units of the lender in other African countries as liabilities.

The central bank "does not see any reason to advise or compel" Stanbic to obey the FRC’s rulings, Emefiele said in the letter. The manner of the regulator’s announcements and actions has the ability to erode investor confidence, Emefiele said, noting the 18 percent drop in Stanbic’s share price from Oct. 26 to Nov. 2.

Stanbic’s shares rose 5 percent to 19.85 naira at 11:53 a.m. in Lagos, Nigeria’s commercial capital, paring the decline since Oct. 26 to 14 percent.

“Regulators have started to take a tougher stance,” said Adesoji Solanke, the Lagos-based head of research at Renaissance Capital. “When you have regulators come out with such far-reaching announcements, investors react. At the very least, due process has to be followed.”

Stanbic’s proposed sale of 800 million shares had also been suspended by the Nigerian Securities Exchange Commission over the FRC investigation into the company’s financial statements. The share sale was approved a month after the bank announced plans in May to raise 24 billion naira ($121 million) of equity.

Standard Bank said in a statement on Wednesday it received a copy of Emefiele’s letter and welcomed the central bank’s intervention.